the petroleum primer

I’ve been writing and talking to people about our situation regarding petroleum for some time now. In previous writing, I’ve referred to many facts of the matter and some of the implications, but I’ve realized that I haven’t put up a collected and concise summary. This is it. I hope you find this helpful, because this stuff is extremely important.

There is no shortage of noisy chatter about petroleum, “energy policy”, and so on, but there is a pretty extreme lack of acknowledgement and explanation of what’s involved.

 

The most basic and important concept to understand is a pattern I usually refer to as “Hubbert’s curve”. It’s also often mentioned as “Hubbert’s peak”, and if you encounter the term “peak oil”, this is a simple shorthand reference term that was coined to quickly refer to this concept.

It gets a little involved, it’s not something that fits into a little sound bite or on a bumper sticker. That’s part of the problem, in an era where many people can’t, or won’t, go beyond anything like a simplistic question something like “well, do we still have oil left, or not?”.

 

M. King Hubbert was a geophysicist specializing in petroleum who worked in the oil business for years. His observations of petroleum discoveries and extraction lead to him noticing patterns he covered in a paper he published in 1956.

The simplest form summary goes something like this. He found that rates of petroleum discoveries followed a general bell-curve sort of pattern, starting off at nothing, getting going, increasing on a steep positive slope on a graph, then reaching a maximum crest (“peak”), then declining, the slope of the curve going negative, into diminishing returns. (To be clear: defined as rate= volume/time, whatever length of time is being sampled; per day, per month, etc.)

In his studies, he found patterns suggesting that oil extraction rates would then follow a similar pattern, with the pattern of the curve of extraction rates lagging behind the discoveries curve by several decades.

This phenomenon worked from a local scale on up, from an individual well, to an area of a oil field, to a region (summing the wells and fields in the region), to a nation (summing all the regions), to, Hubbert suggested, the planet as a whole (summing all the nations). In other words, the local curves all summed, and that built up as you added everything together looking at larger and larger scales.

Hubbert found that the rate of oil discoveries in the United States had peaked and gone into diminishing returns (more and more exploration wells were turning up less and less oil; as more oil had been discovered, there was just less and less that had not already been found). US discoveries, Hubbert found, had peaked and gone into decline of diminishing returns around 1930.

From there, analyzing discoveries data and production data, he projected that the rate of oil extraction in the United States would reach a similar maximum peak, crest, and go into permanent diminishing returns around the beginning of the decade of the seventies.

His employer, Shell Oil, was not happy about these suggestions, seeming pessimistic and negative in their view, and tried to discourage his presentation of all this, but Hubbert went ahead and presented his findings. People in the oil business laughed it off, generally mocked and ridiculed him, dismissed Hubbert as some sort of crackpot loon. People would point at the data showing that US oil extraction rates were just going up and up; over the course of the fifties and sixties, the general consensus was that the United States was just the king of the world of petroleum resources (well, for some decades, we were), and we could just blow through the stuff as much as we wanted.

Time passed, and then as the decade of the seventies proceeded, year after year passed, and people observed the oil extraction data and found something disturbing. Around 1970 and 1971, the rate of US oil extraction had reached a maximum peak, crested in a slight plateau over a couple of years, and then began going into declining numbers, and maintaining that decline.

At that point, many people stopped laughing at Hubbert.

There are some good references around the web for a better and fuller explanation of Hubbert’s curve.

Wikipedia is not necessarily the best reference for everything, but sometimes pages found there are very good, solid introductions to a subject. There is very good information and explanation in this subject on Wikipedia.

http://en.wikipedia.org/wiki/Hubbert_peak

 

Have a good look at the historical data of US oil production.

 

There is what Hubbert’s curve looks like in a real world example.

As you can see, in the last few years, there has been an upturn, and increase in US oil production, which is one of the few bits of actual information that has made it into most news reports. Notice where we are compared to the peak around 1970-1971.

This is the reality of any chatter about “American energy independence” among politicians.

This requires some context. So have a look at another graph, combining history of US oil production, along with US oil consumption, a crucial item, and also net oil imports (total consumption minus what we produced here).

 

 

This is about as clear as it gets in terms of illustrating the difference between grandiose pandering and actual reality in petroleum here in the US.

Looking at the data for oil production, you probably noticed that while the peak shows up around 1970 or so, the decline following isn’t a steady negative slope. It does come back up at times, with another sort of “mini peak” reaching its own peak around the mid eighties. What explains this?

There’s a clue in looking at production data for just the state of Alaska.

 

 

The Alaska oil pipeline was built in the late seventies to move crude extracted from the Prudhoe Bay field in Alaska.

It’s important to take notice of something very important here. The Prudhoe Bay field was the single largest quantity biggest discovery of petroleum in the United States in history. At the start, before we started sucking the oil out, it was estimated to hold a total of about 25 billion barrels of crude.

Look at the graph. You can see where things got rolling in the late seventies, the rate of extraction rocketing up. It reached a peak in the late eighties. Then, the diminishing returns decline.

This is what Hubbert’s curve looks like.

Looking at this on a regional scale elsewhere in the United States, look at Texas:

 

 

This is what Hubbert’s curve looks like.

A while back, somebody online, who lives in the Houston area, made a comment that said he knows a bunch of people who work in the oil business, and something to the effect of “and they say there’s still lots of oil around!”. Well, Texas is apparently still pumping out about a million barrels per day. But what defines “lots”? What does this mean in a country where, even with a decrease in American oil consumption over the past few years with the economic problems, the country still blows through around 18 million barrels per day?

 

Now, let’s back up to the discovery phase. Here’s a graph showing historical data of US oil discoveries, with added data concerning the exploration drilling of “wildcat” wells.

 

 

As you can see, this is graphed showing the data points, with a smoothed curve applied to show overall trend curves. You can see the overall peak of oil discoveries in the “lower 48”.

What’s also interesting, and important, is the inclusion of the “wildcat” activity, the drilling of exploratory wells by independent operators basically taking a shot in the dark gamble hoping it pays off by striking new oil. This is a picture of diminishing returns in finding new oil.

When you hear “drill, baby, drill!” chants that suggest that we could magically have no oil problems if we just drill a bunch more wells in exploration, remember this.

It still gets more involved, but at this point, I want to pause and point out something.

The peak of US crude oil extraction came around 1970-1971. There are probably (you can just about bet cash money on it) people who would say that President Richard Nixon established the Environmental Protection Agency around this same period, and would claim that the downturn is just a result of “environmental extremists and Big Government regulation interfering with exploiting America’s bounty of oil resources”, or something like that. Nonsense.

For anybody who might have such thoughts, let’s have a look elsewhere in the world. Here is a look at crude oil extraction in the North Sea off the coast of the UK.

 

 

There, again, is the peak plateau and diminishing returns of Hubbert’s curve, and the United States EPA is not involved in the North Sea.

Now, since we’re looking at someplace else in the world, where are we, on a worldwide scale?

 

 

That’s what Hubbert’s curve looks like, in terms of discoveries, for the planet as a whole.

Now, let’s take a look at worldwide production.

 

 

You can see variation, but overall, worldwide oil extraction rates have trended upward since the start of the data, shown here from 1960 to just recently.

But take a close look at the years beginning around 2004. This is where we get serious about oil production worldwide, addressing the question of when the world as a whole peaks.

Here’s another graph, zooming in for a close look.

 

 

As you can see, the rate of total crude oil extraction on a planet wide scale has basically not increased since around 2005. You can look at this data and see what some people call a “wobbly plateau”, others call a “bumpy plateau”. You can probably find some things to read by doing on web search using those terms.

The basic idea is that this is something that has been predicted in the past by people who know the subject, as a consequence of the world running into limits of oil extraction rates, with the up and down wobble of extraction rates (and crude oil prices) showing a complex cyclical interaction effect because of hitting the limits, and the economic effects that result.

This is a sign, this plateau, that we might very well be at the all time overall world peak.

This is monumentally important. When the US peaked, decades ago, the country turned to increasing imports from elsewhere in the world. When the world peaks, there is no other planet to turn to, for imports.

Even here, we get more complications that make the picture muddy for people’s understanding of the “oil” picture, because of this. You can look around, do your own research, and find charts and graphs for “oil production” that confuse the issue, because they show “oil production” data that actually includes petroleum crude but then also count any form of liquid fuels in the “oil production” totals, as well.

Make your own judgments about what you think about that sort of accounting practice. This kind of thing seriously confuses the issues involved and misleads people. If you look in some places, you’ll see presentations of graphs and numbers saying that world “oil production” is running somewhere around 85 million to 90 million barrels per day, because of this kind of “cooking the books” to paint a picture somebody likes better, and, among other things, claim “world oil production is still increasing”, even though it is looking very possible that the world is at all time peak.

This matters a great deal, when we have a status quo where all kinds of activity is operating on the basis of assuming effectively unlimited supply rates of light sweet crude petroleum, and slightly more to the point, cheap petroleum.

The issue of oil peak is not strictly a matter of geology. Economic issues complicate the picture, not only in terms of what oil prices do in economic effects and repercussions, but the costs involved affect the production.

Petroleum does not just sit in big tanks under the ground or something. When people ask simplistic questions in terms of whether there is oil left or not, phrasing things like “are we running out of oil?”, there is something that needs to be understood.

It’s easy to say for certain that the petroleum will never be all gone, and this does not mean that there is an unlimited endless supply. This means that there will be petroleum that is never extracted from the Earth, for geological, technical, logistical, and cost reasons.

There will be oil that we just can’t get out of the ground. There is petroleum that is found in known deposits, that is still there, even if it’s technically possible (with great difficulty and cost) to recover, because the costs of extracting and then processing the stuff would be a money losing proposition, unless the selling price of crude oil is very, very high.

This makes discussion of remaining petroleum resources even more complex. Looking at actual or possible production rates gets tricky, because if the price of crude goes very high (as it has been for a stretch of years now), then, petroleum that had been left where it is becomes financially viable. Suddenly, people start making optimistic sounds about wonderful “new” petroleum resources that are newly available, when they are not actually new, they might have been known for a long time, but now, such as the present moment when crude oil prices are hanging around slightly above $90 USD per barrel, they can be a working proposition. This does not mean wonderful new bounties of oil resources that will make oil cheap again, because in these kinds of cases, if the price of crude drops, these extraction projects will just shut right down again because they’re a money losing project again.

This gives you a hint of how the “bumpy plateau” works.

On top of all that, there is another factor, of energy return on energy invested (often appearing abbreviated as EROEI or EROI). You have to put energy into the processes of extracting, processing, and transporting the stuff. One of the useful things about petroleum has been a very high EROEI, especially in the early days when the crude was practically just bubbling out of the ground on its own in places like Pennsylvania, Texas, Oklahoma.

The relatively easy (and therefore cheap) oil is gone. Increasing difficulty and complexity (and therefore increasing cost) isn’t just in the realm of cost of money, decreasing returns in EROEI come into play. Take it down to a 1:1 ratio of EROEI, and that would mean that it takes the energy from a barrel of oil to obtain a barrel of oil. If that were the case, you would be better of using the barrel you have and leaving the stuff in the ground.

There has been an enormous amount of hype about the Bakken formation in the western United States, as I talked about in “when the circus comes to town” recently. Apparently this shale formation holds mainly what is sometimes called “tight oil“, which consists of normal petroleum crude, but in scattered small pockets. Much more is required to extract this stuff than what has been the usual norm, meaning more difficulty, complexity, and cost.

The Bakken is not a new discovery. It’s been known for a long time. So what changed? A lot is made of “new oil technologies”, which is no doubt true, but the biggest factor is the price of petroleum being so high now. Even with the high price of oil to make this a more reasonable proposition economically, the actual output is likely to be disappointing, very disappointing when compared to the delusional optimistic promotion telling people this is a bonanza of oil salvation.

As I wrote previously, Chris Nelder’s article covers some of the issues there.

The Tar Sands getting so much attention in Canada consist of pretty much what it says. What’s there is not petroleum, it’s bitumen. It can be turned into a synthetic substitute for petroleum, a complex and messy process that starts with a hugely destructive operation to extract the bitumen, and turning the bitumen into a petroleum substitute requires massive amounts of water that is left as toxic waste, and the burning of massive amounts of natural gas, another finite hydrocarbon resource.

In oil shale, you also find kerogen, which is another hydrocarbon that is not petroleum, but, essentially, a hydrocarbon deposit that can be regarded as petroleum that has not finished cooking in the geological processes that eventually create petroleum. Again, getting this is complex and messy, and again requires, among other problems, burning massive amounts of natural gas for heat energy as part of the process.

All of these things have become popular themes of people proclaiming them as saviors that make our oil problems just go away, even as means to “energy independence”, supposedly resources that make the very notion of an oil peak disappear. In reality, these are clear indicators of how much of a problem we have, going these routes in what essentially amounts to scraping the dregs of the underground hydrocarbons of the Earth.